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The Consequences of a Public Health Insurance Option: Evidence from Medicare Part D

Daniel P. Miller () and Jungwon Yeo
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Daniel P. Miller: Clemson University
Jungwon Yeo: Singapore Management University

American Journal of Health Economics, 2019, vol. 5, issue 2, 191-226

Abstract: This paper structurally estimates a demand and supply model of Medicare Part D and evaluates counterfactual scenarios that introduce a public option competing alongside private insurers. The results show that a public option with a cost advantage expands coverage and crowds out private insurer enrollment, but has little effect on market premiums. Additional subsidy payments covering the expanded base of enrollees offset welfare gains regardless of the public option's cost position. In scenarios where private insurers cream skim the public option, risk adjustment payments create a pricing wedge that acts as a de facto subsidy for private insurers and a tax on the public option, limiting the public option's penetration but improving welfare through lower private insurer premiums. Risk corridors can be used as a lever to regulate the pricing wedge and redistribute surplus.

Keywords: Medicare Part D; health insurance; public option; risk adjustments (search for similar items in EconPapers)
JEL-codes: H51 I11 I13 L11 (search for similar items in EconPapers)
Date: 2019
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